Newscast
Media WASHINGTON, D.C. —The Securities and Exchange Commission today announced that it charged
Franklin Bank Corp.'s former chief executives for their involvement in a
fraudulent scheme designed to conceal the deterioration of the bank’s
loan portfolio and inflate its reported earnings during the financial
crisis. The SEC alleges that former Franklin CEO Anthony J. Nocella and CFO
J. Russell McCann used aggressive loan modification programs during the
third and fourth quarters of 2007 to hide the true amount of Franklin's
non-performing loans and artificially boost its net income and earnings.
The Houston-based bank holding company declared bankruptcy in 2008.

"Nocella and McCann used the loan modification scheme like a magic
wand to change non-performing loans into performing assets," said Robert
Khuzami, Director of the SEC’s Division of Enforcement. "Their
disclosure and accounting tricks misled investors into believing that
Franklin was outperforming other banks during the height of the
financial crisis."

What
the SEC means is that these banks sold "toxic assets" to investors
in form of Mortgage-Backed Securities (MBS) that were pooled together into
Trusts. The banks were first compensated through TARP (Troubled
Assets Relief Program) money using billions of taxpayers' money. They
were also compensated a second time through insurance (credit
default swaps), and the third compensation came through the stream
of monthly payments by homeowners. The fourth compensation came when
banks were unable to modify loans, and sold the homes at public auctions
through foreclosure.

So
these banks have earned money four-fold, and are not being held accountable.
It seems the magic word is to add the word "bank" in a business
name and one is virtually immune from being charged with illegal business
practices. However, the SEC is slowly changing that, yet whether the courts
will be willing to hold the banks accountable remains to be seen.

The SEC's complaint filed in U.S. District Court for the Southern District of Texas
seeks financial penalties, officer-and-director
bars, and permanent injunctive relief against Nocella and McCann to
enjoin them from future violations of the federal securities laws.

15 USC § 78j(b) - Manipulative and deceptive devices
states:

It shall be unlawful for any person, directly or indirectly, by the use
of any means or instrumentality of interstate commerce or of the mails,
or of any facility of any national securities exchange—

(b)To use or employ, in connection with the
purchase or sale of any security registered on a national securities
exchange or any security not so registered, or any securities-based swap
agreement (as defined in section 206B of the Gramm-Leach-Bliley Act),
any manipulative or deceptive device or contrivance in contravention of
such rules and regulations as the Commission may prescribe as necessary
or appropriate in the public interest or for the protection of
investors.

17 C.F.R. § 240.10b-5
states:

It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of the
mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading, or

(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,

in connection with the purchase or sale of any security.

The
securities banks deal with are Mortgage-Backed Securities (MBS). A company
that engages in the business of investing, reinvesting, owning, holding, or trading in
securities should abide by the Investment
Company Act of 1940 also
referred to as (15 USC § 80a–3)
that requires any such business to be registered in order to conduct business.
Almost 100 percent of these banks that claim to be Trustees for XYZ
Trust are operating illegally because the Trusts are defunct and do not
exist.

When
fighting such cases involving banks claiming to be Trustees, acting on behalf
of some Trust, one has to be willing to fight them all the way to the Supreme
Court, since those justices are more knowledgeable in dealing with
such complex laws.